alternative minimum tax

The Alternative Minimum Tax (AMT) is a U.S. federal income tax designed to ensure that high-income taxpayers pay a minimum amount of tax, even if they utilize various deductions and tax shelters. It was enacted to prevent wealthy individuals from paying little to no federal income tax.12

The AMT calculation is typically performed automatically by tax software or preparers. Taxpayers whose income falls below certain thresholds are exempt from the AMT. For those with higher incomes, the AMT requires a separate calculation to determine if their tax liability under this system exceeds their regular tax liability. If it does, they must pay the higher AMT amount. Certain tax benefits and deductions allowed under regular tax law are disallowed or treated differently for AMT purposes, which can increase taxable income for AMT calculations.12